At first glance Bitcoin does not seem closely related to the world of real estate. Other than the fact that some individuals might have made enough profit on their holdings to buy a house, the two topics appear unrelated. This is a serious misunderstanding of what Bitcoin means for the real estate market in general and transactions in particular. The fact is that Bitcoin demonstrates a technology that has the potential to completely disrupt the real estate industry.
Bitcoin Demonstrates – Blockchain Works
Bitcoin is a cryptocurrency, which means it is protected by encryption (crypto) and that it is used as a medium of exchange (currency). What makes cryptocurrencies so unique is that they are recorded and transferred using a decentralized ledger referred to as a blockchain. This is the new technology that can impact the real estate sector.
Decentralized ledgers store information on multiple copies of the ledger on multiple computers. The validity of each entry is checked against each copy of the ledger, and copies that disagree with the majority are removed from the blockchain. This prevents someone from altering their copy of the ledger and getting that change stored on other copies.
A real estate example demonstrates this point. Currently, ownership records for real estate are kept at the county where the real estate is located. It is possible for someone to break into the Recorder of Deeds office and alter the records for a particular parcel, in effect stealing it from the rightful owner. In the case of an abandoned property or an absentee owner, there would be no one to contest the subsequent illegal sale of the parcel.
However, if there are multiple copies of the database recording the ownership stored on different computers, changing the ownership in one place would be discovered when the transfer of ownership took place. The blockchain would prevent the theft. The value of Bitcoin has been protected by blockchain, proving the technology works. Cook County, Illinois is launching a pilot program for 5.2 million records covering the city of Chicago.
Smart Real Estate Contracts on Blockchain
Blockchains can do much more than just transfer value by storing the information on ownership. They can set the conditions on when the transfer takes place through a feature called a smart contract. This is a self-executing contract that transfers value when both parties agree that the conditions have been fulfilled.
Smart contracts have the potential to significantly change real estate closings. Instead of a real estate agent for both parties, and in some cases a bank representative for both parties, and a representative of the title insurance company all coming together in the same place at the same time, there is only a self-executing smart contract.
The transfer of the title to the parcel and the transfer of funds can be handled without intermediaries with complete security, confidentiality and speed. This reduces closing cost and the time required to close.
And this is just the tip of the iceberg on how blockchain can be applied to the real estate market. Buyers already have access to some property information through websites such as Zillow. Smart contracts can protect additional information such as terms of an offer from casual viewers. Storing information like this on blockchain also prevents disputes between the parties as the transaction moves forward.
Like many new technologies, blockchain has its detractors and naysayers. However, the real estate sector is ripe for disruption, and blockchain has the information management capabilities to do just that. Major financial institutions are already exploring the value of blockchain. It is only be a matter of time before real estate companies do the same.